FRANKFURT/RIGA, March 1 (Reuters) - Latvia's central bank governor, recently detained in a bribery probe, returned to work as an ECB policymaker this week, the country's central bank told Reuters.

Ilmars Rimsevics' return marks the latest twist in a graft probe that last month led to his detention by anti-corruption agents who said they suspected him of taking a bribe of more than 100,000 euros ($123,000).

He has denied the charges, insisting he is the victim of a smear campaign, while his lawyers have said they want restrictions on his freedom to travel and work lifted. Although still unable to work as governor, he has now returned to his old office to carry out European Central Bank duties.

Rimsevics' arrival comes as a surprise and an embarrassment for the Latvian government, whose top ministers, worried about damage to the Baltic state's reputation, have repeatedly urged him to quit.

A group of lawmakers from Latvia's Unity party, which is part of a governing coalition, has also put forward a motion calling on Rimsevics to step down.

"Since Monday, he is back in his office but he cannot fulfill his duties as a governor although he can as a member of the ECB Governing Council," said a spokesman for Latvia's central bank.

Latvia's anti-corruption authority KNAB confirmed that Rimsevics had returned to his office but that he was still not allowed to leave the country under the terms of his bail.

"Everything has been explained to him - what he is allowed and what he is not allowed to do," said the spokeswoman. "He is not entitled to make decisions."

Rimsevics's return also puts the ECB in an awkward position. Its Governing Council gathers in Frankfurt on March 8 for a regular meeting. Rimsevics is a member of that pan-European group and hopes to join them.

As it stands, the terms of his release under a 100,000 euro bail prevents him from leaving the country. Should that change, allowing him to fly to Frankfurt, he would be free to join the council meeting.

The ECB has not commented on the matter. Rimsevics and his lawyers did not respond to requests for comment on Thursday.

The graft probe coincides with the winding down of Latvia's third-largest bank, ABLV.

It went out of business after U.S. authorities singled it out for money laundering and moved to block it from doing financial deals in dollars. ABLV denied any such wrongdoing.

The episode has cast a shadow over Latvia, which belongs to the euro zone and whose top officials hold influential posts both at the European Commission and European Central Bank.

Latvia was one of the hardest hit countries in the global financial crisis, falling into recession as the government sought an international bailout, nationalized Parex Bank and made spending cuts, helping prompt a wave of emigration. (Additional reporting Balazs Koranyi in Frankfurt; Editing by Toby Chopra)